Closing Bell - Closing Bell Overtime: Judgment Time for Stocks 7/12/22

Episode Date: July 12, 2022

The all-important CPI report drops in the morning just as earnings season is kicking into high gear. So, what should investors do? We ask Trivariate’s Adam Parker. Speaking of earnings, the big banks are among the first set to report. Top analyst Mike Mayo of Wells Fargo Securities breaks down what to watch. And, VC heavyweight Lo Toney weighs in on some top tech plays for your portfolio.

And welcome to Overtime, everybody. I'm Scott Wapner here at the New York Stock Exchange. You just heard the bells. We're just getting started right here at Post 9. Lots coming up this hour, too. In just a little bit, I'll speak to star bank analyst Mike Mayo about why he cut estimates and price targets for the biggest names ahead of earnings. Plus, VC heavyweight Lottoni is with us on which tech stock will fare the best in the months ahead. We begin, though, with our talk of the tape, judgment time for stocks. That critical CPI report dropping in the morning just as earnings season gets hot and heavy.

So what are investors to do? Let's ask Trivariate's Adam Parker. He's here with me at the New York Stock Exchange. Good to see you, as always. Good to see you. You show up, stocks sell off. It wasn't the greatest close. Are we trying to get ahead of the CPI?

Yeah, I think so. There was a rumor out that it even leaked, I think. There was a rumor out that there was a fake CPI report out, which we're trying to get some more reporting on. But since you mentioned it, I might as well bring it to light of what some people are talking about on the street. Yeah, that's a rumor. I think some of the firms are blasting it out like it was a rumor. Look, I just think there's math, right? One-third of the CPI is owner's equivalent rent, and rents are rising like crazy.

No matter who you know who's in the real estate business, they'll tell you it's 1% a month still. So that's 12% per year times a third. That's huge upward pressure on the CPI. So the debate you and I have had, everyone's had the last six months, is like, how will the fed react to the high cpi are they gonna you know um realize that they can't get to the two percent bogey in a 12-month time frame and go go quick uh slowly or are they gonna try to get there quickly and that's it's all a timing issue i've thought they would kind of recognize they can't get there in one year and tread lightly let me pose this to you and um get your reaction to it yeah it feels to me like we've got a battle going on, okay, between where we are, high

inflation, rate hikes, earnings estimates too high, economy weakening versus where we may go. Falling inflation, less hawkish Fed, earnings not as bad as feared, and soft landing. Is that fair? I think that's right. And the multiple's down five turns since January 1st, from 21 and changed to 16, plus or minus. So some of it's in the price, but we all study the stocks every day. Find me a company that guided down a ton and then rallied a lot in that news. You've seen some go down that day and then recover a little, but I still don't believe that you could say a recession is in the price. That makes me a little bit nervous because I know the

numbers are way too high. Do you want to focus on what I said is the here and now, or are you more focused on what may be? I think it's two-thirds what may be one-third now. So I think we're more than halfway through the pain, but I still haven't seen that signal. You sometimes get encyclicals where they miss and the stock goes up because people say that's the end of the bad news. We haven't even got the beginning of the bad news yet. So I think it's a little early to be super excited about being anticipatory. I think the CPI period will be high. I have no idea how the Fed will interpret

it because, look, I don't know how they were buying billions of dollars of MBS when the housing market was on fire. So I've been wrong about trying to interpret what the heck they're going to do. I just think it's easy math. You can do the math. The CPI is going to be high because of rent. And we all know that if you're a new home buyer, we're in the worst part of the two by two grid, right? The two by two grid of high home prices, low home prices, high borrowing costs, low borrowing costs. We're in the wrong quadrant, high borrowing costs and high prices. So something's got to give. So people are renting, and that's actually exacerbating the CPI.

It's not helping even as the economy slows. It's going to be high, but what if it's not as high as feared? What does that mean for stocks? I think if you really know that the second derivative CPI is negative, the market's going to scream higher. But I don't think people really want to get in front of that knowing the math of upward pressure from the CPI and the rent. So we're all trying to say, oh, this is deflating or that's deflating. Used car pricing, people are going to get repo. Everyone's looking for the deflationary data.

But one third of the CPI is getting continuously pressed higher. Let's say tomorrow we do some checks, we find out rents are stable for the first month. That's 11, 12 times, 12% grow, 1, 12 times, it's just going to take a long time to roll off. It's probably 12 months minimum elevated, so we can't get the 2% CPI for a long time. And I think it's all about communication around that. One of your headlines is that you're expecting material downward earnings revisions. To me, that feels like you're capitulating finally on what you think are going to happen with earnings, right? I mean, you were maybe more positive than most for the past few times that we've spoken, no? I mean, look, I think that we just think that the estimates are too high and I don't think

they're going to be negative this year. Again, I think what we're trying to say, and maybe this is what you're talking about, is that we still think earnings will grow year over year. That's a function of the shape, right? You grow this much, and then you start to flatten. You still grow beginning to end. I think you'll get mid-single-digit earnings growth. What's in the consensus numbers, though, is 10% for this year and another 9.5%, 10% next year. That's too high.

That's insane. So I think what people are debating is the S&P official numbers are, I think, $250 in earnings. We're at $38.18 at the close. So people are saying, is it $250 or is it $210, $200? As it's declining, am I going to have an idea when it's plateauing or not? So I think that's why you have to always position with some offense and some defense in the portfolio. So maybe the most contentious, if you want to use that word, part of your view is that you're going to have these material

downward revisions to earnings, but that stocks can still go up? How do you get there? So that's just from the long history, right? Analysts start out with a 14% view of growth, the actual seven. And as they come down, the market can rally. I think the challenge when you get acute periods like this is you worry that as they're coming down, we could actually have a sustained stagflationary environment where earnings are down in 23 versus 22. They're going to be up in 22 versus 21. But if you think they're going to be down 15+, I think the market can go down materially more. Everyone seems to have these numbers in their head.

Oh, the trough is 3,400, 3,500. I have no idea, but that doesn't seem right to me if earnings are going to be 200. I think they will be lower than 3,400. But you don't think, so you don't think that the bottom was in, in mid-June? I don't think so. I don't know. I think, as we talked about, you never know when the bottom is until a few months after. I think what you're looking at, I think what we're good at is what's in the price. I don't think gross margins are going to go way down in historical averages, so I'm not a bear on corporate profitability relative to the sort of Shiller PE frameworks because the companies are so much better, more profitable, et cetera. But I think you're heading into a period right now where you're going to see,

I actually thought we'd see some negative pre-releases last week, and we more or less got through it without a lot of huge pre-negs. You know, all things considered, given where the environment is, we really haven't had that many. Right. So I think it's probably going to be more in the guidance. I think the reported numbers look like they're okay. And I think what we're trying to do is always dig through and say,

okay, which companies have more currency exposure? That's not great. Which have more U.S. labor exposure? Because that's where all the wage pressure is. You're trying to triangulate estimate achievability under the surface because you know the only way you're going to outperform is get the guys with better relative estimate achievability in your portfolio. Which sectors are most vulnerable to what you're worried about? Without a doubt, it's machinery and capital goods, select parts and industrials, the estimates are crazy. Okay, they're 50% year over year Q3, another 30 in Q4, 19% more in 2023, yet they have rising input costs, rising waging

pressure, and industrial activity slowing. So for sure, it reminds me of the back half of 2011 when you started getting the European crisis and the estimates were crazy. So I think you'll see vulnerability there. That's a big underweight recommendation for us. I think the better achievability is probably in healthcare services, you services, those kind of areas where you still have positive pricing power. And frankly, we've talked about it before, if you're a small business owner, as long as you're in business, you're going to pay UNH more every year. All right, let's broaden the conversation out. If we could bring in Joe Terranova of Virtus, Lindsey Bell of Ally Invest. Both are CNBC contributors. It's good to see

both of you. Lindsay, to you first. What about this view that Adam Parker puts forth? You're going to have material downward revisions. Stock market can still go up. Yeah, well, I have to say, I think that the second quarter is going to be a lot better than a lot of people think because numbers have come down already. They've actually come down for the second half, too. I think they have more room to move down in the second half of the year. And I think corporate America CFOs are going to take advantage of the free pass that Wall Street's giving them to get more conservative in this type of environment with a lot of uncertainties and unknowns about the current slowdown and where we go from here. So I do think numbers are going to come down. But I would point to the fact that the sectors that are most impacted by interest rates and

economic slowdowns, they've seen their numbers come down for the rest of the year significantly. Yeah, I think we're going to have a battle right off the bat, because as you were speaking, Adam Parker is saying that's not true. Why don't you weigh in directly? If you look at the S&P 500 estimates, I'm not sure exactly what she's referencing, but if you look at the S&P 500, the estimates are about 3% higher now for full year 2022 numbers than they were on January 1st. Now, if you strip out energy, the rest is slightly lower. So maybe that's where the rub is. But the estimates, you know, nearly every input cost is higher, you know, commodities, wages, currencies

going the wrong way, activities rolled over, financial conditions have tightened. So it stands to reason the numbers would be materially lower now than they were on Jan 1. I don't see the numbers as being, you know, down if you include energy, at least in the S&P 500, later we look at it. So I think the devil is in the detail there. What we've seen is consumer discretionary numbers cut very sharply from a 13% expectation for second quarter down to negative 9% growth in the second quarter. You've also seen communication services and the technology sector numbers come down quite a bit. Seven of the 11 sectors have come down in the second quarter. But to Adam's point, he is correct. Energy has moved up substantially. Industrials, materials,

and real estate have all moved up substantially. And I agree with him. I think those are the sectors that we have to worry about the most downside in the starting seasons, because I agree the second half outlook for those sectors is a little bit insane, especially considering the move that we've seen in commodity prices over the last month. Yeah. Joe, set the table for us right in the morning. Not that long from now, we're going to get up, we're going to get the CPI, we're going to get earnings too. All that's at stake here as we talk at the top of the show here about this battle. Where are we versus where we're going? We're in purgatory. It's where the market is right now. How long are we going to remain in purgatory? We've been there for seven and a half months. We'll probably stay there for another four months. I agree with Adam. I agree with Lindsay on

the playbook, the strategy, where you want to be in the market. That's correct. I think there's two conditions that markets have to further digest. of all we're in the middle of a valuation recession that's clear second you've got the us dollar which continues to move higher what's going to be the currency headwind how are multinationals going to respond to that and then lastly this deep inversion in the yield curve and let's let's identify the one part of the yield curve that's most important to everyone that isn't inverted yet and that's the three identify the one part of the yield curve that's most important to everyone that isn't inverted yet and that's the three month to a 10 year which has absolutely collapsed down to 75 basis points from where it was at the beginning of may at 225 so what's going to be

the consequence of that are we going to see credit conditions deteriorate are banks going to hoard cash lend less to weaker borrowers, leverage loans, Europe, the emerging markets? Those are two conditions that I think we have to give consideration to. This is going to play out. We're going to remain in purgatory. I think the catalyst is going to be the midterm election. I think markets will move higher from there. All right. But we have a long time to go between now and then. Yeah, that's a while. Yeah. Purgatory. Joe, you look smart with those numbers behind you, by the way. I'm a little bit jealous.

That looks good. You know, I think that's a long way off. You know, I think that what happens typically, at least when I was an analyst covering semiconductors years ago, you come back after Labor Day, there's some conferences, you sharpen the pencils, and you really look at the 2023 numbers because you kind of have two-thirds of this year in, and I think you kind of take a hack to those numbers. So I think we probably get the downward revision sometime in September and then kind of look to October earnings to see what's in the price.

Is it troughed out? Do you think it's leveling? Do we get any economic news that's better? I don't know about the midterm elections. I know that everyone has a consensus view of what's going to happen there, but that's a little bit outside, I think, the investment window right now. I want everybody's take on tech, but since you mentioned semiconductors, you are a former semiconductor analyst, and I've got what feels to be a good push and pull. Notes coming out, you know, almost daily. Some are positive, some are negative. You go from a supply

chain problem to now a glut, it seems, because of over-ordering of chips. What's the landscape look like to you? The weird part about the semiconductor industry is that there's no penalty for backlog cancellation. So if you were a procurement officer at a big industrial company and your CEO says, you know, you really hurt me here. You couldn't get the silicon I needed to produce my washing machine, my air conditioner, my car. You're worried for your job. So you went out to every supplier and you said, give me as much as possible on the backlog. Give me 200 million 12 months out, 200 million 18, et cetera.

Now, production's finally caught up to consumption a little bit, and that backlog's out there, and you're gonna call these guys and say, hey, you know what, my bad, I don't need that. And there's no penalty for cancellation, so it's always asymmetrically skewed. So everyone knows there's kind of error in the numbers. That's why the prices are down a lot.

The playbook, I think, now within semis is you have to own the higher quality ones that the inventory isn't perishable. You've got to avoid, you know, Micron and AMD and Intel where those things, when you make too many, the prices go down a lot. Avoid AMD. Well, it's down a lot, but when they produce too many, the prices of the graphics chips and the processors erode. If you buy analog devices or Texas instruments, they've hung in better already because their stuff, when they overproduce, you don't cut the price. It's a $2 converter. It's going to be $2 a year from now. What about Joe's NVIDIA? You know, that one's kind of a little bit tricky.

You just recently got that. Yeah. You know, it's funny. Joe, I'm guilty of experience. And all experience means is that you know what used to be the case. And I was sort of critical of that company when I was an analyst. And then a few years ago, somebody who was 25 and worked with me who didn't know better and therefore was correct said, Adam, I don't know what you're talking about. Data centers, graphic chips, crypto, that's all awesome.

And you sound like an old curmudgeon. So the prices come in a lot. Obviously, they have a good long-term horizon. And that's what you're talking about, this sortmudgeon. So, you know, the prices come in a lot. Obviously, they have a good long term horizon. That's what you're talking about. This sort of triple breaking part of the numbers have to come down. The back is going to cancel, but it's a lot in the price. And that's the tension. I'm more optimistic on the long term for the businesses that I know are going to grow above GDP, which are all the ones that have pricing, you know, less pricing. Let me just give an update, quickly to something that we mentioned towards the beginning of my conversation with Adam here. This report that was circulating around some trading desks on Wall Street purported to be a early release or a leak

of the CPI. And that may in fact have led by the way that things trade is, as all of you know, algorithms pick things up, news headlines and markets move. And the market did have, you know, maybe an accelerated negative close. The BLS is confirming to us, to CNBC, that that report was, in fact, fake. As was circulating around and some were sending to me suggesting that it was fake as well, now we can put some actual news behind those reports. Make of it what you will. But the BLS has in fact confirmed to CNBC that whatever report was circulating in the half an hour or so before the close was in fact fake. It's coming out tomorrow. So pay attention to that. I just

wanted to make sure we update it. They'll probably print the same number, though, as the fake and then they'll be in trouble. No, let's hope not, because it was a high number that was in this. Let's hope it's 0.1 off from what the fake was in this report. Joe? Yeah, so, Scott, you know, the last thing I would say, and Adam mentioned this before, and you talked about this yesterday with us on the Halftime Show. One of the reasons why I think this maybe takes a little bit longer, let's remember that in September, the securities that mature off the Federal Reserve's balance sheet, they're going to double. Mortgage-backed securities are going to go to $35 billion per month. Do we actually have $35 billion worth of securities that are actually going to mature? So I think

that's a little bit of added stress, certainly in the real estate market. And I think investors need to see how exactly that process in September is going to unfold. I don't think it's going to be so easy. We're going to wrap it up in a second. Lindsay, though, technology, I want you to continue our thought around this. It's had a nice bounce, right? Estimates coming down in some places, price targets are coming down in others. How concerned should we be about mega cap? You've got FX, as Adam referenced just a few moments ago. Are you concerned about technology earnings?

Yeah, I think technology earnings, like I said, they've come in. But I also think you can't look at it from a sector perspective. You have to dig down into the industry level or even the individual security level. We had Micron kind of lead the way here and they kitchen sink their outlook. It was bad, right? But the stock traded down on that initially, but in the last several days following that, it popped after that. And so I think you might see that type of reaction as people start to think about, is this the worst? Are we getting the worst priced in here? So with

technology, though, it is a margin concern because they have the highest margin in the S&P 500, around 30 percent. There is potential for that to come under pressure in some of the specific sectors. And so I think it's something to watch. And I don't think that the technology is out of the woods at this point in time. The valuations have come in, but it's a prove-me, prove-yourself story, I think, for tech overall. You've got to watch rates, too. You know, 10-year, let's just call it 3%, plus or minus whatever side

it moves of the moment. But how prohibitive are rates to tech? If rates continue to move up again, is that going to be a massive headwind yet again? I personally don't see how the 10-year yield can get to 4 without economic growth being strong. I was even thinking of just 3.5. I mean, the tech can't even withstand that.

Yeah, I agree. We all know if you get something directionally dovish, you're going to want to buy these things. As a former semi-guy, I don't think Micron's a great exemplar of the tech industry. It trades at four times earnings. It's super cyclical. And when they produce too much, the prices get killed. I generally think you're going to see bigger down revisions in the second half of year for tech and aggregate. I agree with her. It's got to be industry by industry, case by case. But software is an area you could see pretty big down revisions. I know everyone thinks it's super sticky. But at the end of the

day, there were way too many companies that were trading at 30 times sales that you just don't need. Well, especially if you get an enterprise spend. Enterprise spend. So maybe you've got to look through and say security is going to be better. You saw that from Palo Alto. You can parse through it, but I just don't see how the numbers are achievable there. And, you know, I think what we were disconnecting on is just maybe the Q2 numbers have come down, but not the full year. I got you. All right. Good stuff. Thanks, everybody. Adam, appreciate it. See you again soon. Lindsay and Joe, you as well. Let's get to our Twitter question of the day. Now, we want to know, what are you expecting from tomorrow's critical CPI report? Will it come in higher than expected, lower than expected, or in line with expectations? So much is riding on

it. So we made the question simple. We want to hear from you at CNBC Overtime on Twitter. Weigh in. We'll give you the results at the end of our show today. Coming up, investors are anxiously awaiting the start of earnings season and the big banks kicking things off later this week. Star analyst Mike Mayo joins us next with the setup. And later, top tech plays for your portfolio. Plexo Capital's Lo Tony has his top picks for you. When Overtime returns. Take a look at the big bank stocks ending the day mostly flat amid the broader market sell-off. It is a very big week for the banks. The likes of J.P. Morgan, Morgan Stanley, Citigroup reporting their Q2 earnings in the days ahead.

Our next guest recently cut his estimates for almost all of the major banks. He's Mike Mayo, Wells Fargo Securities head of large-cap bank research. Good to see you back here at Post 9. Welcome. You say the big question for the quarter, bank CEOs have to put up or shut up. What's that about? You never shy away from a big headline, but what does it mean? Well, look, there's good news and bad news. The good news is I think you're going to see Main Street banking performing very well. You're seeing the best commercial loan growth this quarter in 14 years. And that reinforces what I said on your

show before. This should be the best growth in traditional banking revenues in four decades. The bad news is the R word, recession. That's all anybody cares about. If we go into a hard recession, these bank stocks are going to have problems. If we don't, then this is an incredible buying opportunity. But in the case of bank CEOs, you can't say, oh, a hurricane is coming, and then not back that up with increasing your provisions for problem loans. You're obviously referencing, for those who don't remember, Jamie Dimon making the comments about a hurricane. Yes.

Because of the economic backdrop that he sees. So there's no hedging by these bank CEOs. You can't say, on the one hand, we think we're going into a recession, and on the other hand, we're not putting up reserves for problem loans. There's new accounting, as of two years ago, that mandates that banks back up their words with numerical adjustments to their provisions for problem loans. So grab your popcorn, sit back, and watch to see

which bank CEOs are positive and which are negative. And we actually took down our estimates for some problem loan provisions because of an increased waiting for a potential negative scenario. It doesn't mean we're having a recession, which just means the probability of one has increased. Therefore, banks need to increase their provisions. You don't sound nearly as optimistic as you have in the past. You come on here all the time and you say the banks are pricing in a steep recession. This is a great time to buy the banks. You've got buys or overweights on almost all of the names.

I don't sense that from you as you sit here today. Well, second quarter earnings are a little yucky. I mean, anything that touches the stock or bond markets are hurting. Investment banking should be down one third to one half year over year. It's tough earnings comps. But once you get past the second quarter, Scott, we're talking about an acceleration in net interest income, traditional banking revenues, Main Street banking. If I come back on your show after third quarter earnings, you're going to see higher Main Street banking revenues. After fourth quarter earnings next year, we're on the on-ramp to this four-decade-best acceleration. You're also still, contrary to public perception, you're still likely to see very strong quality of loans. This is not 2007, 2008, 2009.

Many people, the only true recession they've seen is the global financial crisis. This is not the global financial crisis. So accelerating Main Street banking growth, good credit quality, and then the kicker is positive operating leverage. It all gets better after the second quarter, which I said might be a little yucky. But the guidance for Main Street banking revenues with higher rates, accelerating loan growth, good credit quality, this is what we're waiting for. And by the way, we've had 14 years, banks have lived with almost 14 years of 0% Fed funds, 0% interest rates. That's the biggest implicit tax on Main Street banking in modern history.

And now you're getting air back into that net interest margin called NIM, win with NIM here, because that will be expanding over the next year or two. And this is less a forecast than just the math of it. So we're on the on-ramp to this amazing growth in Main Street banking. And to back that up, regional banks, that's where I'm positioned for the quarter. Regional banks like Fifth Third, PNC, Truist, some of the largest regionals, they are over-indexed that commercial lending growth. They benefit from the higher interest rates. You should see positive offering leverage. And they have less of the Wall Street banking headwinds, which should impact second

quarter. So you're expecting ho-hum from J.P. Morgan, Morgan Stanley, Goldman Sachs. What about Bank of America? Ho-hum. Even though Bank of America is still my one to two-year favorite, ho-hum because you cannot escape the lower stock and bond markets this quarter. Now, having said that, you're likely to see amazing trading results from these Wall Street banks, but the market doesn't pay for that. Not capital markets. Investment banking tends to be paid for more, and that's where it's hurting.

But you're also likely to hear commentary, and it's less about the earnings than what the managers have to say about recessions and the backlogs. The backlogs, if and when this market settles, are still quite strong in investment banking. So there's two main questions for this earnings period. One is an accounting question. Do banks go ahead and put up reserves for problem loans, even though conditions remain great? And the other one is a managerial question. Do managers start to cut employees, cut compensation for investment banking and capital markets, or do they hold out thinking that things will recover by the end of the year?

All right, we'll see. I appreciate your time. All right, that's Mike Mayo, Wells Fargo Security here at Post 9. Up next, we're breaking down some top tech plays for your portfolio. VC heavyweight Lo Tony joins us with his top picks. Overtime is right back. Welcome back. Time for a CNBC News Update with Shepard Smith. Hey, Shep. Hey, Scott. From the news on CNBC, here's what's happening.

New details emerging today at the January 6th committee hearing of a late-night meeting at the White House on December the 18th of 2020. During that meeting, a team of outside advisors to former President Trump, including Michael Flynn, Rudy Giuliani, and Sidney Powell, produced a draft order for the Pentagon to seize voting machines across the country. The meeting described as unhinged, with the White House counsel's office forcibly pushing back on that plan. For the first time, we heard from former White House counsel Pat Cipollone, who testified to the committee last week. He says he told the former president and those outside advisers that seizing voting machines was a terrible idea.

To have the federal government seize voting machines, that's a terrible idea for the country. That's not how we do things in the United States. There's no legal authority to do that. Hours after that meeting, in the wee hours of the morning, former President Trump, in a tweet, summoned his followers to the January 6th rally, saying, Be there. We'll be wild. The committee, spending much of its afternoon session working to show how the far-right extremists, including the Proud Boys and the Oath Keepers, consider the former president's tweet as a call to action. A full recap of the testimony and analysis of the hearing. Plus, the NASA administrator

Bill Nelson joins us with new images from the James Webb Space Telescope on the news. 7 Eastern, CNBC. Scott, back to you. All right, Shep, I appreciate it. That's Shepard Smith. We'll see you then. Markets staging a late-day sell-off. The Nasdaq erasing early gains to close down nearly 1%. Joining us now, Plexo Capital founding managing partner, Lo Tony. He's also a CNBC contributor, and I'm happy to have you right here at the Stock Exchange. Good to see you. Thanks for having me. Yeah, we've had a nice move lately in tech, you know, a race today and yesterday, of course. Can you trust it? Do you trust it? Well, I think when we look at how far these markets have gone down, especially for some of the growth stocks that

are primarily comprised of tech, you know, we've lost 70 percent, 80 percent in some cases. If a stock lost 80 percent, started at 100, went down to 20. Even if it gets a 50 percent bump, it's still only going to get to 30. It's still down 70 percent. So I think we still need more clarity. So you like I think you're specifically relating to, you know, the ARK type stocks, which, by the way, I mean, ARK is up, what, 25, 20 percent off of off of its lows. Your point sounds like some of those stocks are never getting anywhere close to where they were. So don't be fooled by what looks like a nice bounce on the surface. Yeah, look, we've seen a period of time where we thought the Fed was our BFF, best friend forever. It turned out they were only our BFFD, best friend for a

decade. And so now we're in this environment where the Fed's going to reduce its $9 trillion balance sheet. We might not ever see that sustained period of low interest rates. And coupling those things together means that we're going to see some of these multiples probably not go back to those levels. You know, we were at a point where growth companies that had growth in excess of 40 percent diverged from the median as high as 35x forward revenues in some instances. And now those have come down closer to the median, which is probably where they should be. As you're talking about this, I'm thinking of cloud stocks, right? Software. Is that the area that we should be most focused on? Adam Parker, who was here before you in the conversation that I had, mentioned that where valuations were, you've got to worry about

enterprise spending among other issues. Yeah. So let's look at this two ways. I think we look at both the enterprise stocks, the cloud stocks, those growth stocks, and also big tech. On the enterprise side, what we want to see is we want to see a continuation of some of the momentum those stocks are showing you know I like GitLab as a company they provided great earnings they beat last quarter they increased guidance for the coming quarter and they're still growing in excess of a hundred percent and I think we need to continue to see that because it shows IT spending on the big tech side what I think we need to look closely at on the earnings is will companies be able to continue to grow the top line for big tech? An indication of enterprise IT spend more broadly, as well as for those companies that service small businesses, keeping an eye on those numbers around small businesses as well.

Of the mega caps, who are you most optimistic about and who are you most worried about? I'm most optimistic about Google and Microsoft. I'm a little worried about Amazon. Their business model does have some components that tie into digital transformation, but their model is much more complex. And I'm concerned about some of the issues with e-commerce, delivery, labor issues. I mentioned at the outset you're a star in the venture capital world. Where are we in, I guess what I want to call the great valuation reset in the private markets? Forget

about what's happened because that lags the public reset. Where are we on that road? Yeah, so we still need a few more quarters to have some statistically significant data. But look, we were in a period based on what the Fed was doing, I mean, that translated down into the private markets as well. So last year, you know, we saw $330 billion deployed. We saw venture capital funds raise about $130 billion. We had almost $800 billion in exits driven by over 1,600 companies entering the public market somehow. And that led to a lot of exuberance, a lot of capital available to GPs, general partners of these venture capital funds. And the unfortunate piece is because there was so much capital,

because people were chasing yield, we bid these companies up too high, in some cases to 100x their revenues. Now we need to reset. Valuations are going to continue to follow the public market and continue to come down. We've already seen that happen in the late stage, the growth stage, and we're now starting to see it trickle down to the earlier stages as well. But the good news is there's a lot of dry powder and some of the most iconic companies are created in these periods of disruption. Think Uber, think Airbnb. There's less competition. Employees don't have all these options. There's a consolidation of talent and

there's fewer competitors that should have never been funded in the first place not getting funded. I'm picturing you having these conversations with founders and I'm wondering if they get it. Are they in denial or do they get it? It takes a little bit of time because it's hard for a founder to think I raised at this valuation in a year or two. If I increase my revenues for even 10x, I might face the prospect of raising at that same valuation or potentially lower. And that's hard to get their minds around, but it's going to have to happen. One of the challenges is for a lot of people that are under a certain age, a threshold of about 30, 35, they haven't been through this significant of a shock

during their career. So that's also something to factor. Sure. We talk about that same exact thing when we talk about the new investors who have come into the stock market in, let's say, the last three years, right? And through the pandemic, have never seen a bear market, but any kind of tumult the way we're experiencing now. It's so good to have you here live. Thanks for having me. All right. That's Low Tony joining us here at the New York Stock Exchange. Up next, we're tracking the biggest movers in the OT. Christina Partsenevelis is standing by with that action. Christina? Scott, we've got a big insider trade for Stitch Fix, more tech layoffs,

and another dating acquisition by Match Group. I'll have all those details right after this short break. We are tracking the biggest movers in OT. Christina Parts and Novelosis is here with that. Christina. We are seeing shares of Stitch Fix moving much higher in the OT after veteran venture capitalist and Stitch Fix board director Bill Gurley buys more shares. Activity shows he bought a million shares at $5.43 a share just last Friday. So keep in mind, though, the market cap for Stitch Fix is a little bit under a billion bucks

as part of this broader drawdown that we've seen in tech stocks. Speaking of tech, shares of Tesla moving slightly higher after a new 60-day filing reveals that Tesla plans to lay off 229 people. The layoffs are tied to the closing down of its San Mateo office. So that part isn't the new news, but the number is. So all the employees, many of which were hourly workers, were working for the autopilot division. Keep in mind Tesla employees consist of almost 100,000 people. But you've got Rivian, Stellantis, Ford, and now Tesla have all made job cuts announcements just within weeks of one another. And then lastly, the parent company of Tinder and Hinge, that would be Match Group,

has acquired another dating app called The League, according to a source familiar with the matter. In order to use The League, you have to be drafted in. They screen applicants to focus on working professionals through access to their LinkedIns and Facebook. The terms of the deal have not been closed. There you have it, Scott. Back over to you. All right, appreciate that, Christina.

Thank you, Christina Parts and Novelos. Coming up, a pair of Wall Street firms trimming their targets on semi-stocks today. The SMH is down more than 30 percent this year. We'll break down the sector with an investor with some skin in the game. We'll do it after the break. In today's halftime overtime, cautious commentary on the semi-stocks. Multiple analysts now cutting their price targets on chips due to inventory builds and falling demand. Odyssey Capital's Jason Snipe owns NVIDIA and Qualcomm. He joins us now. It's good to see you.

What do you make of this? I got a price target cut on NVIDIA to $285 from $315. I've got others this week. NVIDIA down to $235 from $250. AMD goes down. NXP goes down. What do you think about all this? You own, by the way, NVIDIA down to 235 from 250. AMD goes down. NXP goes down. What do you think about all this? You own, by the way, NVIDIA and Qualcomm.

No doubt about it, Scott. So obviously, you know, it's been a tough slay as it relates to semis. I mean, the SMH is down 34% year to date. And there's been a lot of talk about double ordering supply glut, you know, that we're all facing. So what I would say, and then also, I think there are some FX headwinds potentially in these names. But we all know this, I think some of this is also price into the stock. You mentioned the two names that I own in this space, Adia and Qualcomm, two very different companies. But if I talk about Qualcomm for a second I mean it's trading at ten times forward the the the markets at 16 roughly so it's it's it's

a discount to the markets got a 2% yield it's down about 26% year-to-date but I think what's so important here is they really diversified their their business so they're not just in the headset game anymore they're in infotainment they're in cars audio there's there's a lot there. So I really like this name here. There's just a ton of value. And then, you know, as it relates to NVIDIA, which we talk a lot about on the network, I mean, it's just at the beltways of innovation. And I think pullbacks here are opportunities to buy.

And again, I think it's a tough market. There's a tough macro backdrop. If you don't own it, just starting a position here, not maybe fulfilling full order but i think it's it's an opportunity to look at them right here you got to be real specific though right and that's sort of what key bank talks about in their note today consumer weakens further correction looms supply chain findings are mixed but mostly negative and they cite that you know the areas that they're worried about the most pc smartphone versus industrial auto and cloud demand and that's why they make the discrepancy between some of the names they actually do have qualcomm is not quite as bad as some of the others by the way they are

negative nvidia amd ambarella skyworks intel corvo broadcom there's no doubt about it scott i mean Iwerks, Intel, Corvo, Broadcom? There's no doubt about it, Scott. I mean, all these names are not created equal. I mean, you mentioned PCs. I mean, PC revenue is down 12.6%. Deliveries are down 18%. So I understand that piece in the note. But yes, I think it really depends on what names you're looking at here. The value is very important.

Are we looking at expensive stocks relative to the market looking at here the value value is very important you know are are we looking at expensive stocks uh relative to the market what's the value what's the upside and i think there's a lot of risk reward here in these names but you have to be careful you got to tread lightly well that's part of the issue i look at an nvidia for example but the stock's what been cut in half uh you know virtually so it's a year to date it's almost down 50 percent um just because it's down a lot doesn't mean it's it's a cheap or it's done going lower a hundred percent scott i mean yeah to your point it's down almost 50 year-to-date i mean the multiple has come down and it's trading at about 28 times forward but again when i think about it as a long-term hold and again

i think it's so important to understand as a long-term investor, you know, where you are here and how you're thinking about stocks, especially in this space, in the cyclical-oriented space like the semis. You know, NVIDIA, I just feel like from an innovation perspective, I look back at the analyst day and their CEO and what they're doing, you know, as it relates to AI, data center. I mean, data center was up almost 80 percent. Well, 80 percent plus last quarter. I think gaming has slowed. But I do think there's opportunities here. And you're right. Not all these names are going to travel back to where they once were. But I think NVIDIA is a good name to bet on. All right. We'll make that the last word. Jason Stipe, thank you very much. I'll see you again

on the half and an OT. Of course, up next, Santoli's last word, plus the results of today's Twitter question. We you, what are you expecting from tomorrow's CPI report? The majority of you, 54 percent, say higher than expected. I guess that's kind of where we are. After what happened last time, I'm not surprised. Mike Santoli here with his last word. It's a show me story. You've been saying that, right? That's exactly where I was going, too, though.

And it makes me wonder if the number tomorrow retains the power to shock, almost no matter what it is, because the betting line does seem to be toward a hot number now. That's because almost all the CPI reports in the last couple of years have come in on the high side. It's not coming out of nowhere. But given what's gone on with oil and gasoline prices since the meat of the June report month, you wonder if it really is going to be seen as relevant. Now, a hot core number, yeah, sure, maybe it gets people worried again. But considering the Fed has got a three-quarter percentage point hike

likely baked in almost no matter what in July, I do wonder about it. Could be this sort of like clear-the-decks type event, get from macro to micro, getting into earnings. I'm thinking, you know, if it's a better than expected report and we've already built in 75 in July, there's no meeting in August. You do get that look ahead to September and say, OK, so maybe it's not 75 in September. Sure. We were we do we have the ability to look that far? Oh, we do. We have the ability to try, and the market will attempt to.

I don't think 75 is necessarily in the market for September. It's a 50-75 type of thing. So, I mean, we're going to be splitting hairs on this. The fact is the market has projected peak inflation already. It's basically saying over the next couple of years it's going to be less of a problem either because it works itself out or because the Fed gets so restrictive that it breaks things along the way and the economy struggles. And maybe it puts 25 on the table. I mean, you do hear some say.

There's no doubt about it. You know, if it has peaked or if it starts to come down, then 25 gets reintroduced. And we started to get a commentary. That plays into that pivot story. We started to get commentary, Esther George, this week, at least raising that idea that we don't want to be inattentive to the economic impact so far. All right. Oh, yeah. And earnings, too. We have to keep on the ball there. Exactly. All right. Good stuff. That's Mike Santoli with his last word today.

A little bit earlier than normal, because up next, we're going to reveal the final clue in CNBC's top states for business. We'll do that next. We're back in overtime. I'm going to get to the top states story in just a second, but there is a headline that's crossing on the wires. We're trying to independently confirm it as well, but it is regarding Twitter and it's not a big surprise. I don't think Twitter sues Elon Musk in Delaware court for violating $44 billion merger agreement. It seeks court order forcing Mr. Musk to close that acquisition at the 5420 per share. So we'll continue to follow that again. We're working on our own reporting of that, but at least bring that

to you as we keep our eye on shares of that. We are just hours away, meantime, from revealing America's top state for business in our annual study. Scott Cohn joins us once more from the top state with one final clue. Scotty. Hey, Scott. Yeah, this is how it works. We rank all 50 states in 10 categories of competitiveness. The categories have been pretty much the same since we started doing this in 2007. We weight them based on how much the states are talking about them in all of their economic development marketing. So what is the top state for business this year? Here's one last diabolical top states hint. Project Runway. Project Runway. Interesting. All right. Weigh in with your guesses on Twitter or wherever else, and we will reveal America's top state for business and talk to this state's governor tomorrow. All the fun begins on Squawk Box starting at 6 a.m. Eastern time. Topstates.cnbc.com is our website.

Guys? We will look forward to that. And Mike Santoli, I have him here with me. You guess this every year, I'm told. Do you? You literally guess it every year? I think I got it a couple years in a row, and then I retired from guessing because I wanted to preserve my record. He literally gets it every year. I actually have not heard all of Scott's diabolical clues, which means I've not been

thrown off the scent, which is what those clues are meant to be. All right, well, what about this last one? Project Runway. What's your guess? It's a wild guess off the top of my head. It's Colorado. And why do you guess that? I think it's like the largest airport, the last large airport that was built, but

that's ancient history at this point anyways. I'm trying to remember. I have no idea. I think Virginia's one in the past. Washington won. Utah won. I think those might have been ones that I chose. Scott, obviously you're not going to reveal it, but, you know, he makes another guess,

and he apparently is the maestro here. He's very good at it. I thought that we disqualified Santoli from guessing, but nice try. We'll see. We'll look forward to that. We'll see you in the morning. He's not worried. I can tell he's not worried. Now Scott's become

I mean, this is his deal. So we'll see. I know the guesses keep coming in. Colorado's a good one. We'll see if the Santoli streak remains intact. He needs to be a little more immodest next time and just say, yeah,

I mean, I've gotten him right. Yeah, I think there's tape of me. All right, so squawk tomorrow. We reveal that. Yeah. And then we get the CPI at 830. CPI at 830, absolutely. You know, yeah, S&P going into it

on back foot, that's for sure. All right, good stuff. I'll see you tomorrow. I'll see all of you as well right back here. That does it for us.